Germany’s Lindner pushes back against industry call for debt-financed fund

German Finance Minister Christian Lindner (FDP/Renew) has resisted a call by industry association BDI for a new debt-financed fund to pay for infrastructure, education, and additional industrial subsidies.

BDI recently calculated that Germany will need an additional €400 billion in public investments over the next 10 years, most of which would be needed for transport infrastructure, education, and buildings.

With the funding of these investments not yet guaranteed, the BDI said the government should consider a new debt-financed fund after options to spend more effectively and reprioritise the budget spending have been exhausted.

Lindner, however, pushed back against the idea.

“Structural tasks, such as national and alliance defence, strengthening our infrastructure and guaranteeing economic competitiveness cannot be solved with special programmes,” he said at a conference organised by BDI on Tuesday (25 June).

“We would be breaking the European fiscal rules. We would be placing ever higher interest burdens on the shoulders of a future generation,” he said.

“Our task is to organise the structural tasks of our country within the framework of our national fiscal rules and the framework of our European rules,” he said.

“Otherwise, others in Europe would feel invited to no longer observe the European rules either,” Lindner added, pointing to the excessive deficit procedure announced by the European Commission against seven EU countries last week, including France and Italy.

A special fund – the Sondervermögen – would allow the country to circumvent the strict rules of its constitutional ‘debt brake’, which usually only allows for a structural public deficit of 0.35% of GDP.

It was used after the Russian attack on Ukraine in February 2022, when Chancellor Olaf Scholz (SPD/S&D) announced a special fund of €100 billion to top up the country’s defence spending, given the new geopolitical reality.

The special fund for the Bundeswehr was enabled by changing the country’s constitution – which requires a two-thirds majority in parliament – together with opposition parties CDU/CSU.

“The special programme of €100 billion for the Bundeswehr was my initiative,” Lindner told the conference, but added that it was “to achieve an adjustment process”.

“From 2028, we will have to meet our commitment to spend 2% of annual economic output on national and alliance defence from the regular budget,” Lindner said.

Debt brake: Respect, reform, or circumvent?

The statement comes from thorny budget negotiations among the government coalition parties. The government is looking to present its draft 2025 budget in early July, and it must fill a sizable budget gap, spending €25 billion less in 2025 than this year.

Meanwhile, multiple ministries having called for an increase of their expenditure ceilings, including the defence, foreign, development, interior and social affairs ministries, according to t-online.

Both leading government party SPD (S&D) and the Greens of Vice-Chancellor Robert Habeck have called for the constitutional debt brake to be fundamentally reformed – an unlikely prospect, given that a change of the constitution would require a two-thirds majority and that it is vocally rejected by opposition leader Friedrich Merz (CDU/EPP).

Lindner, another staunch defender of the debt brake, wants to present some “technical” tweaks to the rule’s cyclical adjustment – but said in April that he would “protect the reform of the cyclical adjustment from political influence”.

The SPD has previously touted the idea of using the debt brake’s cyclical adjustment to allow for more leeway in national spending as a potential “short-term” fix that would not require changing the constitution.

Government to present growth package

BDI president Siegfried Russwurm, however, stressed on Monday that the umbrella association is “not in favour of relaxing the debt brake” but would instead favour a special fund, which it said would ensure more targeted investments.

“Because this debt instrument requires a broad political consensus across party lines, it creates planning security beyond legislative cycles,” he added.

The calculated €400 billion “were not new demands from German industry, but a stock-taking” of additional public investment needs, Russwurm told the conference. “And anyone who drives on our roads or walks through our schools with their eyes open will not disagree.”

Alongside the 2025 draft budget, the government aims to present a package to “overcome the growth weakness of this country,” Lindner said.

Germany is expected to grow by only 0.3% in GDP this year, according to a BDI calculation, which is, however, below all other large economies’ projections.

Lindner indicated that the package would entail measures to incentivise older workers to work beyond their retirement age, reduce bureaucracy, provide prolonged options for tax write-offs, and provide tax credits for research.

He added that the three-party coalition was also in “talks” about a broader reduction of corporate taxes and mobilising private capital by moving towards more capital funding in old-age provision.

[Edited by Anna Brunetti/Alice Taylor]

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